Vornado Realty Trust 10-Q Summary — Q1 2021
Business Context and Reporting Period
Vornado Realty Trust is a fully integrated REIT conducting substantially all operations through Vornado Realty L.P., which it owned approximately 92.7% of as of March 31, 2021. The portfolio is concentrated in New York office, retail and residential properties, with additional interests in theMART, 555 California Street and other investments. This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenues | $380.0 million | $444.5 million | Down $64.6 million |
| Net income attributable to Vornado | $20.6 million | $17.5 million | Up $3.1 million |
| Net income attributable to common shareholders | $4.1 million | $5.0 million | Down $0.9 million |
| Diluted earnings per share | $0.02 | $0.03 | Down $0.01 |
| FFO attributable to common shareholders plus assumed conversions | $118.4 million, or $0.62 per share | $130.4 million, or $0.68 per share | Down 9.2% |
| NOI at share | $250.1 million | $280.9 million | Down 11.0% |
| NOI at share, cash basis | $248.9 million | $284.0 million | Down 12.4% |
| Net cash provided by operating activities | $224.2 million | $51.4 million | Up $172.7 million |
Cash and cash equivalents were $1.636 billion and restricted cash was $119.5 million at March 31, 2021. The company reported approximately $4.0 billion of liquidity, consisting of $1.8 billion of cash and restricted cash and $2.175 billion available under $2.75 billion of revolving credit facilities.
Consolidated debt totaled approximately $7.425 billion before deferred financing costs, consisting of $5.600 billion of mortgages and $1.825 billion of unsecured debt. The weighted average interest rate was 2.85%. The company also reported $13.5 million of outstanding letters of credit.
Total assets were $16.145 billion and total liabilities were $8.657 billion at March 31, 2021. Occupancy was 93.1% for New York office, 76.6% for New York retail, 88.9% for theMART and 97.8% for 555 California Street.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of COVID-19-related effects, including reduced same-store operations, the closure of Hotel Pennsylvania, cancellation of theMART trade shows and lower BMS and signage revenue.
- Same-store NOI at share declined 8.4%; same-store cash NOI at share declined 7.4%. New York same-store NOI at share declined 8.9%, and theMART declined 12.5%.
- Rental revenue decreased $62.0 million, including a $9.5 million impact from Hotel Pennsylvania, an $11.3 million impact from cancelled trade shows and a $21.7 million decline in same-store operations.
- Expenses decreased $29.9 million, reflecting lower Hotel Pennsylvania and trade-show costs, lower BMS expenses and reduced general and administrative expense, partially offset by other changes.
- Income from partially owned entities increased to $29.1 million from $19.1 million, aided by improved results from the Fifth Avenue and Times Square joint venture, Alexander’s and partially owned office buildings.
- The prior-year period included a $183.5 million loss from real estate fund investments and $68.6 million of gains from dispositions, primarily 220 Central Park South condominium units. Q1 2021 had only a $0.2 million loss from real estate fund investments and no disposition gains.
- Interest and debt expense fell to $50.1 million from $58.8 million, primarily because of lower variable interest rates and the effect of interest-rate swaps.
- Common dividends were $0.53 per share in Q1 2021 versus $0.66 in Q1 2020. Preferred dividends increased to $16.5 million from $12.5 million following the issuance of Series N preferred shares in November 2020.
- Operating cash flow improved substantially, partly because of timing of working-capital changes and higher distributions from partially owned entities. Investing cash outflows were $56.5 million, while financing cash outflows were $142.4 million.
Guidance, Outlook, Risks and Unusual Items
Management did not provide a clear quantitative earnings or FFO guidance figure in the filing. Management stated that cash flow from continuing operations and cash on hand are expected to be adequate over the next twelve months to fund operations, distributions, debt amortization and recurring capital expenditures. Development, redevelopment and acquisitions may require additional borrowings, equity issuance or asset sales.
- COVID-19 continues to affect tenant operations, rent collections, occupancy, trade shows, BMS revenue and property values. The company collected 96% of rent due in Q1 2021, including 97% from office tenants and 90% from retail tenants.
- The company wrote off $1.0 million of straight-line rent receivables and $2.9 million of tenant receivables during the quarter. Future revenue recognition for certain receivables deemed uncollectible will be based on cash actually received.
- Hotel Pennsylvania was permanently closed on April 5, 2021. Trade shows at theMART were expected to resume in the third quarter of 2021.
- The company entered into a $350 million refinancing of 909 Third Avenue at a fixed 3.23% rate through April 2031 and hedged the $500 million PENN 11 mortgage at a fixed 3.03% rate through March 2024.
- After quarter-end, the $1.25 billion unsecured revolving credit facility was extended to April 2026, with pricing reduced to LIBOR plus 0.90%.
- The Crowne Plaza Times Square-related joint venture had defaulted on a $274.4 million non-recourse loan. Real estate fund investments had an aggregate fair value of only $3.7 million, $339.5 million below cost, with $29.2 million of remaining unfunded commitments.
- Major development commitments included approximately $441 million of construction commitments. Estimated total development costs were approximately $1.12 billion for Farley Office and Retail, $450 million for PENN 1, $750 million for PENN 2 and $100 million for districtwide PENN District improvements.
- The company had approximately $1.724 billion of guarantees and master leases. It also expected to fund approximately $10.7 million of additional capital to partially owned entities.
- Interest-rate sensitivity analysis indicated that a 1% increase in base rates would increase annual net income attributable to Vornado by approximately $39.1 million after considering consolidated and non-consolidated debt, hedging and noncontrolling interests.
- Other risks include tenant defaults, refinancing and covenant requirements, insurance availability and cost, environmental matters, litigation, construction delays or cost overruns, and potential impairment of real estate assets.
Investor Verification Priorities
- Verify subsequent rent collections, office and retail occupancy, tenant concessions and bad-debt write-offs as pandemic effects continue.
- Track FFO, same-store NOI, leasing spreads and cash NOI, particularly for New York office and retail properties and theMART.
- Review debt maturities, revolving-credit availability, covenant compliance, interest-rate exposure and the impact of the 909 Third Avenue refinancing and PENN 11 hedge.
- Monitor progress, remaining costs, leasing and funding requirements for Farley, PENN 1, PENN 2 and other development projects.
- Assess the financial consequences of the permanent Hotel Pennsylvania closure and the expected resumption of theMART trade shows.
- Evaluate the Crowne Plaza loan default, the deeply impaired real estate fund investments, unfunded commitments and potential incentive-allocation clawback.
- Review guarantees, master leases, the Pier 92 lease dispute, the Regus litigation and insurance coverage limitations.
- Confirm that the filing’s non-GAAP measures, including FFO and NOI, are reconciled to GAAP results and are comparable with peer disclosures.